Like many other major advertisers, global FMCG brand Colgate-Palmolive has been focussing on driving up return on investment on its ad spend in recent years. But this hasn’t come at the expense of also investing in longer term brand building advertising, and it hasn’t resulted in its overall marketing budgets being squeezed. Rather, executives say they’re looking to continue investing more in advertising, which they credit with playing a key role in fuelling strong volume-led organic sales growth.
Following the release of Colgate-Palmolive’s Q3 earnings last Friday, in which organic sales were up 6.8 percent year-on-year, CEO and president Noel Wallace spoke extensively on a call with investors about the brand’s advertising strategy. The company invests heavily in advertising – it spent $694 million on advertising in Q3, equivalent to 13 percent of net sales. But Wallace painted this spending as a primary investment for the company, key to driving future growth. Colgate-Palmolive’s gross margin has grown in recent quarters, and Wallace said the business has “used this gross margin expansion to continue funding the investment in advertising and capabilities, enabling us to deliver best-in-class volume growth, which is driving strong organic sales growth”.
“A bit democratic”
Wallace was asked on the call directly about how Colgate-Palmolive’s tactics have shifted towards targeting short-term returns as opposed to longer-term brand building with its campaigns.
The CEO said the company has become “much more strategic” with its spending, as it has started to identify where it’s finding the best ROI with its ad spend. But while many brands think about ROI primarily in relation to their messaging and media channels, Colgate-Palmolive uses ROI to identify where there’s high growth potential for specific products and markets.
Wallace said that in the past, the business has been “a bit democratic” in its spending, in terms of how it allocates budgets between divisions, and shifting away from this has helped drive growth. “We’re now much more strategic and we are able to pinpoint where we’re getting the best ROI, where we see the best growth opportunities,” he said. “And the division presidents aren’t afraid to move money around within their divisions and across divisions to ensure that we’re putting our money in areas where we’re going to get the best return for that.”
The CEO said that over the next few years, there will be more focus on analysing ROI across different media channels. “That will be a primary focus for us as we move into ’25 and ’26, is really beefing up the analytical capabilities we have around our media buys and making sure that we’re really understanding what’s working for us on a much more fluid basis than we’ve had before, so we can make decisions on an intelligent basis as quickly as possible,” he said.
But it’s clear from how Wallace talks about marketing investment that this won’t simply mean analysing which media channels are delivering best on measurable short-term sales. “The fundamental strategy within the company is obviously building that flexibility so we can reinvest in building our brands, he said. “Ultimately, that’s how you drive sustained growth over the long-term, is making sure that consumers understand our product benefits and are excited about using our products.”
How high can ad spend go?
Thus, while Colgate-Palmolive is focussing on ROI, Wallace said that reach and frequency are still key metrics for the company’s ad spend. “It’s easy to get enamored with a lot of shiny objects out there in terms of media opportunities, but we’re focused on where we can build reach and build the frequency accordingly to build brand health,” he said. In fact whenever the CEO mentioned ROI, most of the time it was specifically in relation to the company’s digital spending.
And when asked by an analyst on the call how high Calogate-Palmolive’s ad investment can go before it starts to see diminishing returns, Wallace indicated it’s not simply a case of spending until ROI dips below a set figure.
“We have a lot of internal measurements to assess ROI,” he said. “But if you take it at the simplest level, continuing to drive volume growth and broad-based penetration around the world is the most important benchmark for us to ascertain whether our advertising is working for us or not. How high is high? We continue to assess this on a geographic basis.”
